Reduced reimbursements from Medicare, the recovery audit contractor (RAC) program and loss of Disproportionate Share Hospital (DSH) payments are all contributing to the current financial situation at Phelps County Regional Medical Center (PCRMC).

However, despite these challenges, the hospital’s financial books have stayed in the “black” through the first five months of 2013, and while administrators remain optimistic, they say change in the programs mentioned above is needed.

Clayton started the discussion, noting that PCRMC finances received a clean opinion during its 2012 audit.

2012 was a flat year, “significantly underperforming past years,” Clayton said, in regards to PCRMC’s operating income. In 2013, while every month through May has showed an excess of revenue, “we’re underperforming what we expected in the budget,” Clayton said.

He said many things have led to this. Funds that the hospital normally receives from Medicare reimbursements have been reduced.

“Also, very significantly in 2012, a program called RAC (started in 2010) ... took full affect and resulted in $4.5 million in take backs from the hospital on an annual basis,” Clayton said.

Up to three years after a patient has been cared for, these contractors that contract with the Centers for Medicare and Medicaid Services (CMS) have the ability to review claims and billing information.

“In many ways, they’re reviewing the judgment of the physician at the time the care was given,” Clayton said. “Did the patient get into the correct care setting, in-patient versus observation?”

“It’s not just that our reimbursement is shrinking,” Denbo said. “Basically, we’re also noticing that people’s patterns of using the hospital have changed. For example, we’re seeing fewer people coming and needing or wanting or being allowed by their insurance policies to get admitted into the in-patient status.”

Denbo said as of late, the number of patients who ended up in the observation status has “dramatically increased.” Denbo said under the observation status, a patient may stay at the hospital for less than a day or several days.

Denbo said when the RACs review information provided by the hospital, they may decide that they don’t believe certain patients should have been admitted as in-patient statuses, so the contractors take those payments away from hospitals.

Denbo said the hospital is working with physicians to do a better job up front to avoid a scenario like that.

Page 2 of 5 - “I guess you would call it second-guessing what the Medicare auditors are going to expect or how they’ll react,” Denbo said.

Another factor that has led to the hospital’s current financial situation is that there were assumptions in the Affordable Care Act that states would expand Medicaid and that DSH payments, which hospitals receive for taking care of those who are currently uninsured, would be adjusted.

However, the DSH payments are going away and Medicaid is not being expanded in Missouri, Clayton noted. Hawkins said DSH payments, which normally amount to $4 million for PCRMC, help offset about $32 million that the hospital writes off.

Clayton said with an estimated cash reserve of $50 or $55 million, the hospital could operate for about 160 to 170 days with its cash on hand if there is a lapse in collecting accounts receivable.

He said having a good cash reserve helps when there is a slow down in payment streams from Medicare.

James added later in the meeting that while the national benchmark for debt-to-equity ratio for hospitals is 50 percent, “today, we (PCRMC) are down to 17 percent and the lower the better.”

“For us it’s a challenge as an organization to try to navigate the next few years,” Clayton said.

While some hospitals around the nation have been reducing staff, “in our case, we do not have any plans for a massive layoff,” Denbo said of PCRMC.

Over the past year, when someone has left his or her position at PCRMC, Denbo said administrators look at whether the position needs to be replaced or whether reorganizing or restructuring needs to occur to take on those individual’s duties. Hawkins noted that PCRMC has reduced 150 FTEs.

James said, in 2013, “We could count on our actual reimbursement to be 12 percent less than our previous years.” Then through sequestration, another 2 percent in payments was cut from the hospital. This total of 14 percent in reduction does not include the loss of payments through RAC, it was noted.

“So if you look at what the hospital has actually achieved, we’re still in the ‘black’ even though we’ve had the RAC recovery challenge and we’re 14 percent under our potential reimbursement based on previous years,” James said. “I’m really pleased that we’ve been able to provide the quality of care and still be in the ‘black.’ ”

“The board’s other concern is at what point, as these cuts and this squeeze gets bad enough, do we have to decide what services can we continue to provide?” Denbo said. It was noted that the hospital subsidizes many programs like ambulance and psychiatric services as well as its emergency room, 24 hours a day, 365 days a year.

Page 3 of 5 - “The board is not at a deciding point (in regards to these services) and doesn’t want to get to that point,” Denbo said. “We’re restructuring and repositioning to provide health care in a greatly different way.

“If you don’t have at the end of the day at least a 2 to 5 percent operating margin ... eventually it’s going to be very hard for you to sustain the scope and breadth of the organization,” Denbo said.

He said any cuts to programs would likely be based on how large their negative contributions are, not necessarily how valuable someone might felt they are to the community.

How patients are affected

James said despite these rules, PCRMC “has not compromised the quality” of patient care.

He noted that while patients assigned to the observation status can take advantage of a provision where they can take their own medicine that they bring from home, which saves on paying for prescriptions at the hospital, in some cases, there has been a shift of passing the cost from Medicare to the patient.

“With every admission, there is a potential for a full retraction of reimbursement from Medicare, so the scrutiny for admission has become more rigorous,” James said.

He noted that while a lot of patients have an expectation of admission, they may not meet certain thresholds anymore to be admitted.

James said in some cases, patients’ access to care has been reduced and there has been an increase in the cost of care to patients.

Regarding RACs, 51 percent of the time, the contractors are denying PCRMC payments and saying that certain patients should have never been admitted to the hospital.

Clayton said the contractors are paid based on the number of denials made. Contractors have recovered $5.4 billion nationally, it was noted. There are about four national contract groups that CMS contracts with for these recovery audits.

James said it seems as though that when a denial was made, it was an arbitrary decision. James noted that hospitals can challenge the denials, but said the system is still flawed.

“Over time it will probably work itself out, but it’s already costing us millions,” James said.

Hawkins said there are two bills in Congress that would regulate the RAC process and hold the contractors more accountable.

What would help

“In terms of things that would help us in particular ... or rural providers such as us would be to delay the DSH payment reduction,” Denbo said. “If they hit us when they’re supposed to next year, we’ll have to make another across-the-board $2 million in reduction in expenses. That means jobs in some instances. There’s no way to get around it. I’m not saying that as a threat. I’m saying that as a logical statement at this point.”

Page 4 of 5 - Denbo said administrators will continue to look at restructuring and ways to be more efficient.

The second thing Denbo said would help would be to find a way to expand the number of people covered under Medicaid. Denbo said PCRMC will continue not to turn anyone away despite the hospital not getting reimbursements for caring for uninsured patients.

“Our uninsured population has increased exponentially,” Denbo said.

Denbo added that it’s also important that the state legislature come up with a solution for expanding Medicaid.

“That money that the state is not in a position to give back to providers like us has been taken from us,” Denbo said. He said the funds are needed to help PCRMC continue to provide its array of services.

While new health insurance exchanges have not been set up yet, it is expected that around October peple could start enrolling in the exchanges, meaning that some area individuals could qualify and sign up for the exchanges and get insurance subsidized through the Affordable Care Act.

“That’s a positive thing,” Denbo said, but added that it will take time for people to realize they qualify and to sign up.

Positives

James noted the hospital has grown in the last 35 years, increasing the number of beds, doctors and specialties.

He asked the commission and those in attendance, where would the estimated 36,000 to 40,000 patients that PCRMC serves Phelps and surrounding counties a year go if certain services were to be cut?

“The fact is we have a lot to be proud of. As a management team, we’re committed to keep the boat afloat and realign resources so that we meet that bottom line,” James said. “This is a recent major tilt in the way reimbursements occur, but I’m confident, as I think our team is, that we’re going to make the changes to meet these challenges and work through it.”

James also noted a positive for the hospital when he mentioned that PCRMC scores well when comparing this facility to other hospitals across the nation.

CMS has benchmarks set up that measure qualities by which hospitals will get paid in the future. If hospitals fail to meet those standards, their reimbursements will be cut.

Some of the national standards are readmission rates for congestive heart failure, pneumonia and acute heart attacks.

“Our hospital exceeds those benchmarks by having a lower readmission rate in all three of those categories than the national average or CMS benchmark,” James said.

Pulaski County

Also during the discussion, an update on PCRMC expanding into Pulaski County was given.

Page 5 of 5 - James said PCRMC’s population service area is anywhere from 125,000 to 175,000 depending on how metrics are compiled.

“We’ve always been in the Pulaski County area, but the difference is the patient has been coming to us,” James said.

In order to stabilize that part of its coverage area as well as deter attrition of patients to other hospitals, James said administrators felt a presence in Pulaski County was needed.

James also noted that the population of Pulaski County exceeded Phelps County in the 2010 census, and in addition, demographics show that the average age in Pulaski County is younger than Phelps County. James said different services need to be provided to the different age groups.

According to James, a PCRMC building in Pulaski County has been designed and the architectural plans are complete, but a way to fund the new facility has not been determined yet.

Hawkins said about 20 percent of the hospital’s volume comes from Pulaski County.

“Being in Pulaski County allows us to do things in Phelps County we wouldn’t otherwise be able to do,” Clayton said.